Why Citywide Minimum Wage Hikes Are a Bad Idea

November 6, 2014

Typically, a minimum wage is set by the state -- it is rare for a city to enact its own minimum wage. As University of Kentucky professor Aaron Yelowitz explains, Santa Fe, San Francisco, Washington, D.C., Seattle and a few other places have minimum wages, but the majority of cities lack their own minimum wage.

Why? Because a citywide wage, explains Yelowitz, is especially harmful to the city that enacts it:

A citywide minimum wage does not work because businesses can move a few miles out of the city to avoid the additional labor costs; statewide laws, on the other hand, prevent such an easy fix.

Shoppers can move as easily as businesses to other cities to do their shopping -- as a result, businesses in cities with minimum wages cannot respond to the wage hike by raising their prices, because a price hike would cost them customers.

This means that city businesses must find other ways to meet the additional labor costs: cutting jobs or hours for their employees. Indeed, he notes that a 2005 increase in Santa Fe\'s minimum wage from $5.15 to $8.50 an hour increased unemployment by 3.2 percentage points.